Last week, Margaret Hamburg, commissioner of the United States Food and Drug Administration (FDA), delivered a tough message to the Indian pharmaceutical sector. Inspections carried out by the FDA of drug manufacturing plants in India had allegedly uncovered major quality issues, triggering this step. Last May, Ranbaxy Laboratories pleaded guilty to felony charges related to drug safety and agreed to pay half a billion dollars in civil and criminal fines under a settlement agreement that had been in the works since late 2011. One might have thought that this tough stance would have signalled what lay ahead unless the Indian pharmaceutical industry and its regulator got their act together. If so, one would be mistaken. More than half of the warning letters issued by the FDA pursuant to its global inspection of drug manufacturing facilities have been addressed to Indian drug manufacturers, including Wockhardt, Strides Arcolab and RPG Life Sciences. And if there are serious quality issues with plants that export to the US, rest assured that quality control in plants that manufacture only for the Indian market is likely to be even more compromised. The response of G N Singh, Drug Controller General of India, is revealing: "I am not worried about issues of quality… Indian pharmaceutical companies cannot be judged by American standards." Indeed he claimed that if US standards were applied to Indian drug manufacturing plants, almost all of them would shut down. Instead, presumably, they should be judged by our low standards. Aim low, hit lower. By coincidence (although some argue not), the United States Federal Aviation Administration (FAA) downgraded India's air safety rating to Category II (from category I) earlier this month, below Pakistan and equal to Swaziland and Zimbabwe. Once again, this was hardly a bolt from the blue. In two audits conducted last year, the FAA had clearly intimated to the Directorate General of Civil Aviation (DGCA) the existence of a backlog of sufficiently qualified officials to oversee safety norms. The DGCA chose to slumber. Yet, these two cases of regulatory weaknesses in India actually represent the more positive stories. Since both cases are in the tradeable sector, sectoral regulators in foreign jurisdictions, who are more competent and are relatively less prone to political and financial pressures, can highlight weaknesses. Also, since Indians are so sensitive to foreign criticism, the government can be shamed into taking action - at least to some degree. Given that a former civil aviation minister is intent on intimidating through libel laws the author of a book examining his stint as a minister, an influential member of Parliament is bankrupting his airline but preserving his personal fortune and the incumbent is comfortable with the DGCA asking private airlines to offer special privileges to MPs, only the scrutiny of an external regulator puts some pressure on the system. Contrast this with the situation in the non-tradeable sector, where there is no external scrutiny, and the outcomes are correspondingly much worse.
Take road and rail transport, which, unlike air transport, are non-tradeables. Annually, roughly two per cent of all deaths in India - or about 200,000 - are the result of road traffic accidents. With railway ministers intent on keeping fares low and starting new - and unfinished - lines, railway safety has been the collateral damage. Thus, it is little wonder that a high-level safety review committee set up by the government in 2011 found that about 15,000 people were killed in accidents involving the Indian Railways every year. "No civilised society can accept such a massacre on their railway system," the report stated. Not really. This society does; the estimated Rs 50,000 crore required to replace all railroad crossings with bridges or overpasses will not be available, since the regulator is the minister(s) whose interests need not be congruent with the requirements of a "civilised society". The health sector offers another example. Even as the FDA inspection story was playing itself out, the health minister transferred the health secretary, Keshav Desiraju, stating that "these are administrative things ... officers' and ministers' portfolios change - it is a regular affair". Sure. Of course. Irregularity is now indeed so regular. The key reason for the removal of a bureaucrat widely respected for his integrity and effectiveness was apparently his refusal to the re-induction of Ketan Desai as a member of the Medical Council of India (MCI), the apex regulator of the medical profession. One might think that a profession governed by the Hippocratic oath would be very careful in re-inducting a member who had earlier served as its chairperson for nearly a decade, whose conduct led to his arrest by the Central Bureau of Investigation on corruption charges, who had been charged by the Delhi High Court for turning the MCI into a "den of corruption" and whose licence was once suspended by the MCI. But one would be wrong. The case of the health sector exemplifying the intensity of regulatory failures in the non-tradeable sector is manifest in spades in the higher education sector. Multiple regulators created a de facto licence raj and the outcomes are only too obvious. If one wants to observe just how much a government cares about its commitment to a well-regulated sector, it is not in its rhetoric, the Bills it passes or the institutional rules per se. Those do matter, but what matters the most is the selection of the regulator. Compare the person selected to be the Reserve Bank of India governor with the head of the University Grants Commission and right there one knows the future of monetary policy in India and the fate of higher education. And when a Keshav Desiraju is eased out to accommodate a Ketan Desai, it is a reminder of B R Ambedkar's prediction about the Indian Constitution: "If things go wrong … the reason will not be that we had a bad Constitution. What we will have to say is that Man was vile." Why a government that has so eloquently championed the social sectors on the one hand undermines them by selecting regulators of such modest attributes on the other can only be speculated on. Unfortunately, these are also largely non-tradeable sectors and will not be subject to the scrutiny of external regulators.
The writer is director of the Centre for the Advanced Study of India at the University of Pennsylvania